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When it comes to saving for retirement, a deferred variable annuity can be a useful tool. The money you invest grows tax-deferred, so you won’t owe taxes on your earnings until they’re withdrawn. You can typically invest in portfolios covering all major asset classes, giving you a chance for long-term growth. And when you’re ready to retire, a variable annuity can provide a dependable stream of income.*
Of course, most investments come with fees, and annuities are no exception. Because annuities are insurance products, they typically include a “mortality and risk” charge and an administrative fee, along with the underlying operating expenses for the investment portfolios. Across the annuity industry, annual fees average 2.25%, according to Morningstar, Inc. as of December 2014. But there are ways to manage your annuity costs.
See what you could save
A great way to keep your annuity costs low is to consider the Vanguard Variable Annuity, issued by Transamerica Premier Life Insurance Company and (in New York State only) by Transamerica Financial Life Insurance Company.
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With an average expense ratio of 0.56%, the Vanguard Variable Annuity’s costs are more than 70% below the industry average.** That difference can save you about $1,700 a year in fees for every $100,000 you invest.
The Vanguard Variable Annuity offers a diverse lineup of stock, bond, and money market portfolios, many of which are index-based. The low expense ratios of the underlying investments help to keep your costs down.
You’ll also save on commissions and surrender charges. The Vanguard Variable Annuity is sold directly to you, so there are no commissions or purchase fees. You can exchange money tax-free among portfolios without incurring transaction fees, and there’s never a surrender charge if you decide to move your contract. This combination of factors helps keep your annuity costs far below the industry average, and keeps more of your money working for you.
Calculate your savings
Try our online calculator to help estimate how much you might save by transferring from a higher cost annuity to the Vanguard Variable Annuity. You can compare costs for more than 1,000 annuity products from other providers by answering 3 simple questions. The calculator will alert you to any surrender charges you might incur by leaving your current provider.
*Product guarantees are subject to the claims-paying ability of the issuing insurance company.
**Source: Morningstar, Inc., as of December 2014. The Vanguard Variable Annuity has an average expense ratio of 0.56%, versus the annuity industry average of 2.25%; excludes fees for optional riders. Actual expense ratios for the Vanguard Variable Annuity range from 0.45% to 0.75%, depending on the investment allocation. The expense ratio includes an administrative fee of 0.10% and a mortality and expense risk fee of 0.19%. The expense ratio excludes additional fees that would apply if the Return of Premium death benefit rider or Secure Income (Guaranteed Lifetime Withdrawal Benefit) rider is elected. In addition, contracts with balances under $25,000 are subject to a $25 annual maintenance fee.
Notes:
Variable annuities are long-term investment vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to market fluctuation and investment risk, including the possible loss of the money you invest. If you take withdrawals from a variable annuity prior to age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
Investments in bond funds are subject to interest rate, credit, and inflation risk.
For more information about the Vanguard Variable Annuity, visit vanguard.com or call 800-276-7238 to obtain fund and variable annuity contract prospectuses. Investment objectives, risks, charges, expenses and other important information about the products are contained in the prospectus; read and consider it carefully before investing.
Before making the decision to switch to another annuity, including the Vanguard Variable Annuity, you should consider all costs—such as annual maintenance fees, surrender charges, fees for optional riders and death benefits—and the financial strength of the insurance carrier.
The Vanguard Variable Annuity is a flexible-premium variable annuity issued by Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (NAIC No. 66281), and in New York State only, by Transamerica Financial Life Insurance Company, Harrison, New York (NAIC No. 70688). Form No. VVAP U 1101 (in Florida, Form No. VVAP U 1101 (FL), and in New York, VVA NY 0208(R13)), without agent representation. Policy and rider form numbers may vary by state and may not be available in all states. The Vanguard Group administers the Vanguard Variable Annuity for the issuer. Its variable annuity and investment costs rank among the lowest in the industry, according to Morningstar, Inc., December 2014. The Vanguard Group, Transamerica Premier Life Insurance Company, and Transamerica Financial Life Insurance Company do not provide tax advice. Investors are encouraged to consult a tax advisor for information on how annuity taxation applies to their individual situations.
This article is not approved for advertising in Oregon and may not be approved for Georgia, Mississippi, or Oklahoma.
5192 (06/15)
© 2015 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.
This content was provided by Vanguard Annuity and Insurance Services. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.
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